Application of articles 261 B of the FTC and 132-1-f) of the VAT Directive to the banking and insurance sectors: next episode on April 5th, 2017

The VAT exemption laid down in article 132-1-f) of the VAT Directive in favour of cost sharing will be discussed again on Wednesday 5 April 2017.

Indeed, the Advocate General will present its opinion in the case Commission v. Germany (C-616/16).

In this case, the European Commission criticizes Germany for limiting the VAT exemption to groups whose members are physicians or persons practicing paramedical professions and to hospitals or establishments of a similar nature. Yet, according to the Commission, neither the wording, the objective nor the background of article 132-1-f) justify such a limitation of the VAT exemption to certain professional groups.

It is interesting to note that the Advocate General in this case is Melchior Wathelet. It is therefore not the Advocate General Juliane Kokott who recently presented its opinions in the DNB Banka (C-326/15) and Aviva (C-605/15) cases.

We may recall that in the Aviva case, the Advocate General Kokott examined on her own initiative, the question having not been referred to her by the national court, the issue of whether a group of insurance companies could benefit from the VAT exemption. The Advocate General Kokott answered negatively based on (i) the position of the exemption in the VAT Directive, i.e. under Chapter 2 “Exemptions for certain activities in the public interest” (and not under Chapter 3 “Exemptions for other activities”) and (ii) the Proposal for a VAT Directive as regards the treatment of insurance and financial services (COM(2007)747) now reported which, according to the Advocate General, provided for an extension of the VAT exemption to the banking and insurance sectors.

However, such an analysis appears questionable.

Indeed, preparatory work for the Sixth VAT Directive suggests that the current text results in a proposal issued by the French delegation clearly providing for the application of the VAT exemption to the banking and insurance sectors (see in particular T/120/76 (FIN) of 31 March 1976).

Moreover, it is not clear from the now reported Proposal for a VAT Directive (COM(2007)747) and the Commission working document attached to this proposal (SEC(2007)1554), that the VAT exemption was not already applicable, under certain conditions, to the banking and insurance sectors, which was subsequently expressly confirmed by the Council of the European Union (see, to that effect, 15578/10 FISC 129).

Let us therefore hope that Advocate General Melchior Wathelet choses a different analysis, in favour of applying the VAT exemption to the banking and insurance sectors.

This being said, these different cases demonstrate that it is time to create modern and secure tools, namely:

  • In the short term in France: a VAT group (single taxable person) enabling cooperation between entities of the same group, which requires a mere transposition in France of the VAT Directive
  • In the medium term: new regulations regarding cost sharing arrangements with clear and appropriate rules. There should be no confusion as regards the exact scope of the VAT exemption due to conditions such as the absence of distortion of competition. This second objective requires an amendment of the VAT Directive but is essential to the cooperation between different company groups

Article written with the participation of Emilie Dufour

William Stemmer

William Stemmer, Partner, has more than 20 years’ experience in Indirect Tax matters. William particularly specializes in the real estate sector. William carries out many training courses on VAT aspects […]